Value Chain Analysis and Achieving Competitive Advantage

Air YEA Simulation
Value Chain Analysis and Achieving Competitive Advantage
Report

Executive Summary
Air Year is one of the key industry players in the airline business. The company is an average airliner in
its category with a stock value of $28.76. With a net profit of $186005, it has a cumulative net profit of
$438137. The company exists within a highly competitive industry. Standing as a middle level brand,
the company’s reliability matches the industry leaders; its quality level surpasses most of the high
earners. The airline industry best practices include a competitive value chain, a stable resource base,
strategic decision making and brand development. This report considers Air Yeas performance in
comparison to other brands in its industry to bring out gaps in the company’s business level approaches.
Lessons from industry simulation brings out concepts of value chain for Air YEA’s adoption. Like other
competent industries, the airline sector places high value on decision-making as an integral part of its
management practices. As Air YEA’s management team, we need to use different business strategies
such as reduced costs, partnership, differentiation and value chain to build its resources and capability
(Strategy Simulation, 2017). The team has options from business models in the industry on how to cope
with industry challenges, competitor strategies and other plans. Building and improving on models
needs a continuous process with a focus on its value chain. Lessons from a simulation exercise brings
out YEA Airline needs for a better business model that covers its internal operations with the external
factors. Experimenting with businesses processes gives us key elements for implementation.

Contents
1.0 Assessing YEA’s Internal and External Environment...........................................................................4
Value Chain Analysis...............................................................................................................................4
Improved efficiency.............................................................................................................................4
Differentiation and cost leadership.......................................................................................................4
2.0 Improving YEAs Strategic Business Unit.............................................................................................5
2.1 Market Trends....................................................................................................................................5
2.2 Creating a Competitive Advantage through Strategic Planning Process...........................................6
Fares and marketing plan.....................................................................................................................6
Financial ratio and Stakeholder Perspective (Acquisition)..................................................................7
Scheduling............................................................................................................................................7
Corporate Level Strategy.............................................................................................................................9
3.1 Operational efficiency........................................................................................................................9
Learning Experience..................................................................................................................................10
APPENDIX................................................................................................................................................11
References..................................................................................................................................................15

1.0 Assessing YEA’s Internal and External Environment
The airline industry presents a good example of a service industry where simulation is applicable
(Smith, Golden, & Deighan, 2014). An assessment of the internal environment of YEA shows an
adoption of strategies from the external market of competitors. Industry level strategies revolve around
the focus, cost factors and differentiation. Gaps in the airline means it needs improvements in the value
chain through factors influencing customers and the airline industry and its effects of additional revenue
to Air YEA. This analysis also looks at how to boost YEA’s intangible assets.
Value Chain Analysis
Historically, YEA Airline had a startup of 2700 passengers in 5 routes with just 20,000 passengers by
first quarter. Showing cyclical profitability, the company made loses and gains. The trend reveals a need
for major changes in the primary and support activities.
Improved efficiency in value chain
Although the brand shows an improved number of passengers at 73% per flight, it requires technological
improvements, better HR and efficient management to reach a breakeven point and overcome industry
challenges. From Table 1 there is progress with steady increases in yield per revenue, per passenger and
miles but there are fluctuations in Net profits. This is an efficiency concern that calls for an analysis of
its outbound activities and operations. The unpredictable fuel trends in the market implies changes in
procurement and general administration.
Differentiation and cost leadership
YEAs business model shows gaps and it needs a strategy that builds on its resources. The company has
fixed assets ranging from airplanes, ground equipment, trucks, hangars, office facilities, office
equipment and others. As a regional airliner, it has a moderate number of passengers from a small
market location. Table 1 below shows progressive drops in revenue despite increased yield per mile. A

look at its differentiation plan shows that for a long time the company has owned the Beechcraft 1900.
From market analysis, YEA needs to expand into new markets with other aircrafts. Its tangible resource
review defines its strength in the market showing a middle airliner. YEA stands out as a cost friendly
airline in the industry though its profits are still lower than the leading airliners. Its operation cost seems
higher with marketing expenditure as high as $50000 on advertising and promotions like incentives and
vacation plan offers. To improve its inputs for a better final product, it needs quality airlines and
efficient operations.
Q
tr.
R
evenue
A
vailable
Yield
per Yield
per
L
oad
Net Fuel
Spot/
0 4
,259,321
8
,147,200
0.350 0.183 52.3% $22,234 .96/.96
-1 3 8 0.375 0.183 48.8% $8,450 1.01/.93
-2 3
,492,145
7
,465,400
0.389 0.182 46.7% $3,520 .99/.94
-3 2
,897,566
7
,465,400
0.464 0.180 38.8% ($205) .98/.96
-4 2
,680,345
7
,465,400
0.500 0.180 35.9% $5,872 .94/1.01
-5 2
,344,965
5
,320,650
0.415 0.183 44.0% $2,156 .92/1.00
-6 2 5 0.437 0.181 41.4% $43 .93/1.00
Table 1: The operating revenue showing YEAs tangible resources
2.0 Improving YEAs Strategic Business Unit
2.1 Market Trends
Deregulation of fares in the market means improved strategies and cost efficiency. New policies indicate
improved equipment maintenance, changes in scheduling and frequent monitoring from government.
Regulations also feature increased safety, reduction of out of service timing and better quality for
customer benefits. These call for enhanced training of pilots, special certification, document compliance
and paper work. The industry policies also calls for use of quality equipment and compliance with
preventive and the corrective maintenance of spares. YEA needs technological inputs within its
processes, spare engines, cash and additional equipment for the fleet (Kapfer, 2012).

YEA also needs to emulate market trends for adoption of regional and national airlines. Common
aircraft sizes in the market comprise of 19-50 passenger propjets. The location has old and new
equipment for commuter aircrafts. Advanced equipment include advanced technology fuel efficient,
reduced noise and nonflammable cabin items.
2.2 Creating a Competitive Advantage through Strategic Planning Process
Paperwork, training and hiring the minimum required employees will cost YEA financial resources. It
needs to rethink expansion of its resource base through loans for regionalism and high demand routes.
To save on maintenance costs, YEA Airlines has a chance to own used larger aircrafts from bigger
airlines in the region. YEA’s corporate decision-making needs an analysis of its administrative support
activities. This modelling of airlines using business level strategies shapes the brand image (Aaker,
2012).
Fares and marketing plan
Passengers in this market prefer cabin class services with flight attendants and stand up head room
services. YEA expects more operation costs hence a hike on its fares. For example, Jet aircraft is a
preferred machine but Air YEA uses propjets. If technology is expensive for its resource base, YEA has
a chance to invest in smaller aircrafts for short routes as a unique path dependence competitive edge.
The region has a good number of daily commuters making multiple aircrafts a better choice. However,
in this market larger aircrafts are viable for longer foreign routes. Cheaper marketing and reduced
operational costs per mile is a unique plan. Online and social media platforms contribute to lower
operating costs through cheaper marketing.
YEA Airlines needs wider choices and discount rates for clients. Taking advantage of the regions large
airliners strategy of using luxury brands for resort routes is one way. Luxury firms also have customized
inflight advertising through magazines and branding strategies, which costs just 10% of what YEA uses
in vacation promos (Wensveen, 2016). Venturing into foreign routes calls for advantages such as

comfort, speed, cost and size. YEA needs to get rid of old Beechrafts for improved models with a higher
passenger capacity and market benefits such as cabin services and convenience. Cheaper fares for a
luxury airline is a plus but hiring travel agents and online sales costs more. Incase YEA ventures into
cargo services it needs $10000 in marketing costs per quarter.
Financial ratio and Stakeholder Perspective (Acquisition)
Currently YEA, Airlines serves seven routes as shown in table 2 below. From this analysis, the region
has a high demand for quality services at affordable rates (Katila, Chen, & Piezunka, 2012). Resort
routes seem to be doing better but these are luxury client routes hence the need for a new aircrafts like
the British Aero 31, which has better cabin service, and short route advantages. For higher returns that
meet its threshold, the brand may also consider the Embracer Brasilia for more passenger space of 30
and better mile coverage as well as profits of $ 132,000. Purchasing a new Brasilia jet from larger
companies is ideal for quieter and safer flights that luxury clients require. This paves the way for the
foreign routes, which also have a market. Accepting acquisition partnership with leading airliners like
Jewel is another way to meet the demand for the business and tourism travelers (johanson & Mattsson,
2015).
Scheduling
Monitoring Scheduling tactics and cabin services is one way for YEA airlines’ improvement. This could
be through regional airlines, nonstop flights, resort, tourist travel and affordable flights. The table below
shows more demand for intercity connections, business and university links. For more round trips, yea
needs comparison with key competitors and a new stakeholder analysis of its customers.

Market
Type
Qtr. 0
Daily Seat
Demand
Per Firm
Qtr. 0
Number of
Competitors
In Market
Round
Trip Miles D
escrip
tion
From your mini-hub to a
medium city with light
manufacturing and serviceService between 2 medium cities.
One has a
From your mini-hub to a regional
hub that has
D 36 2 360
From your mini-hub to a medium
city that has
a major university and extensive
business services, with a stopover
halfway out from the hub at small
but growing technology cluster.
E 36 1 400
From your mini-hub to a medium
city that has
Table 2: Market trends for services and flights

Hiring a sales person at $ 15000 costs more in salary, compensations, travel and fringe benefits.
However, pricing strategies also influence market profitability and YEA’s cash flow, operations, sales
report, fleet status, and income statement, for a better balance sheet (Macal & North, 2014).
Corporate Level Strategy
3.1 Operational efficiency
Introduction of new products operational efficiency and customer value are important. Affordable fares
per mile for a luxury airline is a corporate strategy but YEA needs an efficient station at the airport with
operation logistics such as baggage handling and ground services. Additional cargo is more costly so
YEA needs to focus on passenger services first. Customers are keen on cabin services and employees
represent a critical brand value. Setting up a station costs $10000 with features in crew costs, baggage,
cargo and ground handling. Passengers want a competent station with ultramodern facilities featuring
weather updates, efficient handling and proper maintenance (Wensveen, 2016). The company has plans
for a new station but it requires systems with reliable ticketing, terminal operations, and cabin services.
The organizational plan needs to change for new operational decisions involving regional and local
operations. With an employee base of 81, this is a medium sized company with a 15% turnover rate.
Employees need to be part of the company hence the need for leadership and good HR practices.
Appendix 4 shows a summary of the decisions for the brand with lower costs and better aircraft
management (Mallikarjun, 2015). These include advertising, stocks, and incidents.
Table 3 below shows fuel costs on average and contract supply. Compared with YEAs balance sheets in
the appendix, this shows a worrying market trend of unpredictability in fuel costs. This trend calls for an
risk management plan to deal with the inflation.
Quarter 0 -1 -2 -3 -4 -5 -6 -7
Avg. Spot 0.96 1.01 0.99 0.98 0.94 0.92 0.93 0.95

Contract 0.97 0.93 0.94 0.96 1.01 1.00 1.00 0.96
Table 3: Fuel costs per quarter for YEA’s first quarters
Learning Experience
Financial decisions influence the success of a company. YEA plans to invest in new aircrafts, this is a
good plan but it needs a balance of its resources. Long-term financial liabilities featuring brand equity
and assets and credit financing for working capital and business expansions are good for YEAs
enhanced optimization (Mayassi, 2015). YEA has special decisions on holiday campaigns but it also
needs business level strategies like diversification, hiring, safety, dual designation, purchasing policies
and distributional channels. These are non-financial decisions have intangible benefits for branding
YEA in the market. From market analysis, luxury airlines have higher financial ratios and stakeholder
perspective, hence an edge. The stakeholder analysis of value chain gives YEA ideas for better
improvements on all elements of the company.

APPENDIX
Marketing Expense $36,000 2
Quality and Training $1,000 0
General and Administrative $134,260 9
Depreciation $48,750 3
Total Operating Expense $ 1,188,286 7
9.7%
Profit Before Tax $37,056 2.5%
Less Income Tax (40%) $14,822 1.0%
Net Profit $22,234 1.5%
1. Income Statement
Gross Revenue 100.0%
Commissions $135,659 9.1%
Refunds $119,260 8.0%
Net Revenue $1,235,842 82.9%

2. Balance Sheet
Cash $85,785 Accounts Payable $344,070
Accounts Receivable $596,304 Loans $450,000
Aircraft Cost $2,500,000 Total Liabilities $794,070
Less Depreciation -$800,000
Net Aircraft $1,700,000 Common Stock $1,500,000
Facilities/Equipment $100,000 Retained Earnings $188,019
Total Equity $1,688,019
Total Assets $2,482,089 Total Liab. and Equity
$2,482,089
3. Operations Report
Available Seat Miles
The capacity to carry passengers, calculated as:
seats per flight x number of flights* x route miles
Revenue Passenger Miles
A measure of airline “production” calculated as
passengers per flight x number of flights* x route
Passenger Load Factor
A measure of how well aircraft are being
utilized. It is revenue passenger miles /
available seat miles
Yield per Passenger Mile
Calculated by dividing Gross Revenue (on the Income
Statement)

Yield per Available Seat Mile This is Gross Revenue divided by Available Seat Miles.
Cost per Available Seat Mile
Total operating costs (including commissions & refunds)
divided by Available Seat Miles.
4. Decision Summary
Decision Description Value Ranges
Select a fare structure
(discount, normal,Level of food
service on theSpending on promotion in the
quarter (this is separate from fare
A
dvertisi
Spending on advertising for the 0-99,999
Customized magazine to promote Yes/No
Add sales force to promote the
Business. Cost per salesperson is
0 - 4
Set a budget to market cargo
Service. Budget of 0 indicates
Quality and
Training
Enter spending on a quality 0 - 100,000
Increase compensation above
industry average for all or selectBasic maintenance is required, Level 1, 2 (+
$1500), or 3Fuel can be purchased
on the spot market,
All spot,
spot/contract
Aircraft
Acquisition
Purchase or lease up to 2 types of
Aircraft per period. Purchased
aircraft:
select type
number: 1 -
Dispose of aircraft at
any time. Costs
$50,000 to cancel a
Keep or

Choose routes to serve and fare
sale (1/3 off) for each route. Costs
aircraft and fare sale
Social Performance Choose from among nine causes
to support in the community.
0 - 100,000
plus area choice
Enter amount of capital needed
and shares will be sold at currentPay cash dividend or optional
L
oan
Short-term loan is
interest-only; enter
negative value repay
0 - available
credit or
negativeC
ertific
Extra cash can be invested in a CD
for the quarter. Investments doEach period you
may have to
Choices
vary by

References
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johanson, J., & Mattsson, L. G. (2015). Knowledge Networks and Power: Internationalisation in
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thinking. Kogan page publishers.
Katila, R., Chen, E. L., & Piezunka, H. (2012). All the right moves: How entrepreneurial firms
compete effectively. Strategic Entrepreneurship Journal, 2, 116-132.
Macal, C., & North, M. (2014). Introductory tutorial: Agent based modelling and simulation.
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Mallikarjun, S. (2015). Efficiency of US airlines: A strategic operating model . Journal of Air
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from https://priceonomics.com/can-airlines-make-money/
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https://www.interpretive.com/business-simulations/hrmanagement/

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